Borrowers will be able to switch to an interest-only mortgage or extend their mortgage terms without affecting their credit score or undertaking an affordability test, in reforms led by Chancellor Jeremy Hunt.
For a six-month period, lenders will have to offer such a switch, while customers will be able to freely switch back to their original terms.
Other options will be a temporary payment deferral or part interest-part repayment mortgage.
The rules also dictate that customers won’t be forced to have their homes repossessed within 12 months from their first missed payment.
Meanwhile people approaching the end of a fixed rate deal will be offered the chance to lock in a deal up to six months ahead.
Jeremy Hunt, Chancellor of the Exchequer, said: “There are two groups of people that we are particularly worried about. The first are people who are at real risk of losing their homes because they fall behind in their mortgage payments. And the second are people who are having to change their mortgage because their fixed rate comes to an end, and they’re worried about the impact on their family finances of higher mortgage rates.
“So today I agreed with the banks and the principal mortgage lenders and the Financial Conduct Authority three very important things.
“The first is that absolutely anyone can talk to their bank or their mortgage lender and it will have no impact whatsoever on their credit score.
“The second is that if you are anxious about the impact on your family finances and you change your mortgage to interest only or you extend the term of your mortgage and you want to go back to your original mortgage deal, within six months, you can do so, no questions asked and no impact on your credit score.
“That gives people a powerful new tool for managing their monthly budgets – and it will begin taking effect within the next two weeks.
“And finally for people who are at risk of losing their home in that extreme situation, the banks and mortgage lenders have a number of things in place. The last thing that they want to do to repossess a home, but in that extreme situation they have agreed there will be a minimum 12 month period before there’s a repossession without consent.
“These measures should offer comfort to those who are anxious about high interest rates and support for those who do get into difficulty.”
Nathan Emerson, CEO of Propertymark said: “The announcement that UK Government is now introducing new measures to provide support for residential mortgage holders through a new mortgage charter is welcomed and needs to be followed by decision-makers.
“Our member agents have told us that homeowners are currently being penalised for contacting their bank for support and for switching to interest-only mortgages. Therefore, it is now crucial that the banks and building societies step up to deliver on these promises and help homeowners at such a testing time.”
Ray Boulger, senior technical manager of John Charcol, is concerned about the ‘no questions asked’ nature of this change in policy, as well as how the government appears to be undermining the Financial Conduct Authority’s independence. His response is here.
